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A Looming Transmission Crunch for the U.S. East Coast’s Offshore Wind Ambitions

Building the transmission grid needed to grow U.S. renewable energy capacity is complicated enough on solid ground. It’s even more complicated for the nascent offshore wind industry. 

But if East Coast states want to hit goals of nearly 29 gigawatts of offshore wind in the next 15 years, they’ll need to find solutions. A key first step will be working with federal regulators and regional grid operators to find ways to share the costs of building offshore transmission, rather than going it alone. 

That’s the key message from the Federal Energy Regulatory Commission’s technical conference on offshore wind integration last month, featuring representatives from utilities and states trying to plan ahead for an unprecedented undersea high voltage transmission system buildout. 

Virginia, Maryland, New Jersey, New York, Connecticut, and Massachusetts are calling for a combined 28.5 GW of offshore wind capacity by 2035. That will cost roughly $100 billion, of which about $15 billion and $20 billion will go into offshore transmission, according to an October report from the Business Network for Offshore Wind advocacy group. 

But today’s constructs for allocating transmission costs are unlikely to lead to those investments being done in time, workshop participants warned. 

“The current ‘generator lead’ approach that states have used to date,” in which individual offshore wind projects and offtakers bear the costs of building individual transmission corridors needed to bring their power to shore, “is unsustainable,” Stuart Nachimas, CEO of the transmission unit of New York utility Con Edison, said in his opening remarks. 

Instead, Nachimas promoted a “transmission-first” approach that shares costs among multiple offshore wind project investors, utilities, states, and the ratepayers that will end up paying for them.  

Without this effort, offshore wind projects could end up disconnected from their onshore offtakers, projects could face lengthy delays and challenges, and costs could rise by hundreds of millions of dollars, if the evidence from similar problems in Europe are any indication, he said. 

A ‘transmission-first’ approach to offshore wind 

The vast majority of U.S. transmission projects are built under complex return on equity cost-sharing proceedings, overseen by FERC and conducted by the Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) that manage transmission networks that serve about two-thirds of U.S. electricity customers. 

There are longstanding challenges to building transmission under these complicated regulatory regimes, which threaten to constrain onshore wind and solar power growth. That’s even more true for projects crossing multiple RTOs. 

Offshore wind adds even more complexity, since it involves both new offshore networks and hardening of onshore grids to absorb their power. A recent PJM study indicated a potential for $6.4 billion in onshore grid upgrades to integrate the 15.6 GW of offshore wind projects in its interconnection queue, the Business Network for Offshore Wind report noted. 

Asking individual developers to bear the costs of the grid upgrades their projects trigger is like “requiring the last vehicle entering a congested highway to pay the full cost of adding another lane to the highway,” the report noted, with the result that projects may be abandoned under the cost pressures involved. It also incentivizes parties that might benefit from the resulting upgrades to try to avoid being put in the position of paying for them — the so-called “free rider” problem — which can lead to project-killing stalemates.  

“A centralized transmission planning process, conducted by the grid operator and accounting for all benefits as well as the scale economies of transmission, is likely to yield a more optimal transmission investment,” wrote report authors Brandon Burke, the trade group’s policy and outreach director, and Grid Strategies president Rob Gramlich and vice president Michael Goggin.

That view is backed by Brattle Group studies, finding that a “network” approach to coordinating shared transmission infrastructure for offshore wind development in New York and New England could deliver hundreds of millions of dollars in savings. 

Benefits include reducing duplicative costs, speeding time to interconnection, preventing early lower-capacity buildouts from constraining future growth, and ensuring that offshore wind power is delivered to onshore locations that face higher energy prices, and thus greater value from the incoming wind power. 

Merchant models vs. multi-party regulatory engagement 

Jon Wellinghoff, former FERC chairman and CEO of Grid Policy, agreed in his presentation that a “planned mesh network (PMN),” featuring a high voltage direct current (HVDC) backbone to link multiple offshore wind projects, could help solve these problems. 

A handful of projects of this kind are being proposed as “merchant transmission” by independent developers seeking to recoup the massive costs involved through arrangements with generators and customers. Those include a proposal by developer Anbaric for an “OceanGrid” network off the New York and New Jersey coasts. 

But Wellinghoff said the merchant model may not be “particularly suited” to meeting the East Coast’s pressing needs, since they risk never being completed. That’s the case for the Google-backed Atlantic Wind Connection launched in 2010. It promised significant cost benefits for offshore wind projects from Virginia to New Jersey, but has not announced the needed financing, likely due to the absence of projects ready to use its capacity.

Still there are some models to emulate in onshore U.S. transmission development, Wellinghoff noted. Those include Texas grid operator ERCOT’s Competitive Renewable Energy Zone (CREZ) policy, which enabled $7 billion in transmission investment that have helped grow the state’s wind and solar capacity.  

FERC also approved California grid operator CAISO’s cost recovery mechanisms to enable $2.1 billion in transmission development to connect wind projects being developed in its eastern Tehachapi Mountains. Midwest grid operator MISO’s multi-value projects (MVP) portfolio approach has enabled about $5.2 billion in transmission to boost wind power capacity by about 25 GW over the past decade. 

Getting FERC involved

Participants in last month’s conference agreed that grid operators will need FERC to launch multi-party planning efforts for offshore wind, since it holds primary authority over interstate transmission planning and cost recovery, as well as over interregional transmission cost allocation under FERC Order 1000. 

FERC could start with a policy statement declaring its authority over offshore transmission planning, and then calling a joint meeting of ISO-NE, NYISO and PJM to create a “multi-RTO/ISO interregional planning and procurement task force,” Wellinghoff wrote.  

Whether FERC takes up these kinds of suggestions may well depend on the political goals of its commissioners. The Republican majority appointed by the Trump administration has issued several orders in the past few years expected to have detrimental effects on clean energy resources supported by states with aggressive decarbonization goals. 

The incoming Biden administration will be able to choose a new FERC chair, but won’t be able to nominate replacements for sitting commissioners until their terms end or they depart early. A FERC led by Democrats “should take advantage of the opportunity and issue the first-ever rules aimed at facilitating offshore wind deployment,” Ari Peskoe, director of the Electricity Law Initiative at Harvard University, argued in a recent FERC policy paper. 

Meanwhile, projects already underway like Vineyard Wind’s 800-MW development off the Massachusetts coast, which are further along in their permitting process, will continue to pursue generator lead transmission tie-in approaches, the Business Network for Offshore Wind noted.

But that shouldn’t stop multi-party network efforts from “proceeding in parallel to ensure that the long lead-time needed to develop a transmission network does not preclude a more optimal solution for later expansions,” it noted. 

That could help manage New England’s increasingly complicated offshore wind picture, where multiple projects are seeking to deliver power to Massachusetts, Rhode Island and Connecticut in different combinations. It could also coordinate a network for New York and New Jersey, where grid operator jurisdiction is split between NYISO and PJM.  

Credit: Business Network for Offshore Wind

Source: Greentech Media